10. Differences Between Equity and Derivative Trading

Published at 1650196025.749

The number of investors using algorithmic trading systems in Vietnam is still limited. As an estimate, 98% of algorithmic trading systems in Vietnam operate on the derivatives market (VN30F futures contracts) but not on the equity market. This is due to fundamental differences between the two markets as follows.

Time to Complete Transactions

Differences in completion time explain why more than 60% of algorithmic trading prefers derivatives markets to stock markets. This can be understood as the algorithmic trading system that can trade at high frequency in the derivatives market. It’s rather limited in the stock market since the wait time takes up to 1.5 days to sell.

Database Complexity 

Most derivatives trading algorithms use technical analysis that includes only price and volume data. They are easy to collect and organize into a database.

In contrast, trading algorithms on the equity market use fundamental analysis, which requires full financial statements from all listed companies in Vietnam. They include income statements, balance sheets, and cash flow statements. These reports usually have different structures when it comes to company types, like insurance, security companies, conventional companies, or even banks. Databases in the equity market have specific requirements in the data structure, query speed, data cleaning, etc. The database complexity is much higher in the equity market compared to the derivatives market.

Note that when using multivariate algorithms, the database gets even more complex. These algorithms require more types of data besides financial statements.

Fees and Taxes

Taxes and two-way transaction fees in the derivatives market are only about 30% of the stock market, excluding price slippage. From this perspective, the derivatives market looks more attractive to investors. However, in the long term, trading in the derivatives market may incur higher fees if investors opt for high-frequency trades. There’s no daily transaction limit in the derivatives market.

In summary, there are three main differences between algorithmic trading in the equity market and in the derivatives market as follows:


For most algorithmic traders, the derivatives market is more attractive due to the three main differences above. However, at Algotrade, we are working on algorithmic trading for both markets, as fundamental analysis proves to be highly valuable. There are also opportunities for market-neutral strategies that combine both markets at the same time for higher efficiency.